Opinion

Our property market is still broken – and that means trouble ahead

If it wasn’t so serious, this would be funny, possibly tragic

The Grand Canal Basin area of Dublin Docklands. Photograph: Bryan O’Brien

Eoin Drea
Sat Jul 28 2018 - 05:00

You have to love estate agents – or at least Irish estate agents. The flag bearers for the “this time its different” mantra in the Irish economy up to 2008 are now warning of a “cooling-off” period in Irish property prices.

But of course, in their eyes, 2018 is very different from 2008. Ireland now has – courtesy of the EU, let's be honest – a proper handle on banking regulation. There are enforceable Central Bank rules about how much people can borrow relative to their income and prices are only really rising because there is so much demand and so little supply.

It’s actually a good sign because it shows how much employment has risen over the past five years. In this Leaving-Certificate-foundation-level view of the Irish property market, supply will rise to meet demand, prices will stabilise – sounds like their 2008 vision of a “soft landing” to me – and Ireland will embrace a generation of sustainable growth.

If it wasn’t so serious, this would be funny, possibly tragic.

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Irish people remain as obsessed as ever with owning property. The lessons of the 2008-14 period have been neither understood nor embedded into policy making. Ireland continues to exhibit a deeply flawed view of property as an economic driver of growth.

What’s the safest investment in Ireland? Residential property. You can count on a couple of years of suburban bliss without having to pay your mortgage before the financial institutions can even begin to navigate the ridiculously complex repossession procedures. In this model, property trumps all. No wonder Irish people blame the banks, the government and even the EU for every bad financial decision they make in their lives.

In this model there can never be a sustainable Irish property market. Yes, 2018 is different to 2008, but the core weaknesses at the heart of the Irish model remain. The rental market remains a gold mine for investors (increasingly large-scale and international) due to the absence of longer-term leases, rent pegged to inflation and a uniform system for assessing the pre-and post- lease condition of rental properties.

Key element

This isn't rocket science. Look at most European states, including where I live – Belgium – where secure, affordable and well-sized rental apartments are a key element of a properly functioning property market. Here, I have a nine-year lease pegged to inflation, a 100 sq m two-bedroom apartment (with dedicated attic and cellar storage space) in a nice suburb of Brussels at a cost of a little more than half an apartment in somewhere like Stillorgan. And yes – for those of you aghast at the thought of raising a family in an apartment – I have a wife and a three-year-old.

Ireland also remains incapable of building at a proper density in its large urban centres. Even in the heart of Dublin city – such as the International Financial Services Centre – planners seem to take fright at anything over six or seven stories. And even in the instances where the policymakers can agree on trying to introduce some density, such as the recently refused redevelopment of Dublin's Tara Street, planners ultimately judge scale as dangerous (or as compromising visual amenity).

It seems that if in their minds Dublin is like Florence or Rome, then the vista of the Customs House should be Unesco protected. Seriously, this isn’t the real world, is it? Sure let’s just build more houses in places like Carlow and let the people commute for three hours a day.

Why is density so important for Ireland, and what could we learn from Belgium? Firstly, policymakers need to acknowledge that higher densities do not imply 20-storey buildings at every busy traffic junction in Dublin. In Brussels, the majority of residential developments are well under eight storeys close to the city centre and often only three or four in the suburbs.

But property is incredibly well utilised in Brussels. It is not unusual to have traditional three- and four- storey houses split into two or three well-sized apartments, sitting beside detached multi-million-euro palatial pads. Most people here still define their property (either rented or owned) by their location and proximity to services, rather than by size and access to a rear garden. The local authority playground and park that are a three-minute walk from our fourth-floor apartment are worth more to us than any rear garden.

Second, density compacts a city, allowing local authorities and national government to better develop public transport links, educational facilities and community services. Belgians (and Germans) love to complain about public transport here, but we find it amazing. Multiple metro lines, too many tram lines to count and buses (with mainline rail to the airport) in a city the same size as Dublin.

Practical

Third, and herein lies a key problem for Ireland: building density can only be successful if apartments are practical for couples and families. From storage to access for buggies , apartments need to become bigger and better. Unfortunately in this regard Ireland seems to have regressed in recent years.

In addition, apartment living will only be sustainable if public facilities – parks, playgrounds, schools, shops, public transport – are integrated into every neighbourhood. I walk my daughter five minutes to her free pre-school every morning.

Here Ireland faces a huge financial and cultural challenge – trying to retrofit the physical structure of cities where a semi-detached house has long been the property goal. In this regard, the redevelopment of the Cork dock lands is a readymade opportunity to learn from the six-storey blandness of the IFSC.

So, there will not be a generation of sustainable growth in Irish property prices. It’s impossible because the entire model is built on sand. It’s funny how even after all that has happened in Ireland over the past decade, it is still largely the same developers and the same property agents pitching the same worn out stories of “cooling off”.

If I was a developer, I wouldn’t be rushing to bring huge completions to market, I’d drip feed supply over the next couple of years and watch prices (and my bank balance) reach for the stars. This is the natural result of a property model that focuses on winners (property owners) and losers (everybody else). And successive governments that lack the bravery to tackle these problems at source.

So it could be a hard Brexit, a global trade war, international investors cashing out or developers flooding the market, but another crash – or “correction” in estate agent lingo – will occur. And this time it won’t be the banks’ fault. But of course it won’t be our fault either.

Eoin Drea is an Irish economist working in Brussels at the Wilfried Martens Centre for European Studies. The views expressed are personal

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